In 1921 Reza Khan (later Reza Shah Pahlavi), an officer in Iran's only military force (Cossack Brigade) used his troops to support a coup against the government of Qajar Dynasty. Within four years he had established himself as the most powerful person in the country by suppressing rebellions and establishing order. In 1925 a specially convened assembly deposed Ahmad Shah, the last ruler of the Qajar dynasty, and named Reza Khan, who earlier had adopted the surname Pahlavi, as the new shah.

Reza Shah had ambitious plans for modernizing of Iran. These plans included developing large-scale industries, implementing major infrastructure projects, building a cross-country railroad system, establishing a national public education system, reforming the judiciary, and improving health care. He believed a strong, centralized government managed by educated personnel could carry out his plans.

He sent hundreds of Iranians including his son to Europe for training. During 16 years from 1925 and 1941, Reza Shah's numerous development projects transformed Iran into an industrial, urbanized country. Public education progressed rapidly, and new social classes - a professional middle class and an industrial working class - emerged.

By the mid-1930s Reza Shah's dictatorial style of rule caused dissatisfaction in Iran, particularly among religious and intellectual elites.

In 1935 by the direct order of Reza Shah the office of foreign affairs requested the foreign embassies and missions in Tehran that the country should be called Iran and not Persia any more. As Persia chauvinistically bore the name of one Iranian ethnical group and not all of them and the name of Iran was always called by all inhabitants of the country for thousands of years.

Reza Shah tried to minimize involvement with Britain and the Union of Soviet Socialist Republics (USSR; formed from the Russian Empire in 1922), although Britain, through its ownership of the Angelo-Iranian Oil Company, controlled all of Iran's oil resources. But many of his development projects required foreign technical expertise. To avoid awarding contracts to British and Soviet Companies, Reza Shah preferred to obtain technical assistance from Germany, France, Italy and other European countries. This made problems for Iran after 1939, when Germany and Britain became enemies in World War II. Reza Shah declared Iran a neutral country, but Britain insisted that German engineers and technicians in Iran were spies with missions to sabotage British oil facilities in southwestern Iran and demanded that Iran expel all German citizens. Reza Shah refused, claiming this would adversely impact his development projects.

Following Germany's invasion of the USSR in June 1941, Britain and the Soviet Union became allies. Both turned their attention to Iran. Britain and the USSR saw the newly opened Trans-Iranian Railroad as an attractive transport route from the Persian Gulf to the Soviet region. In August 1941, because of refusing to expel the German nationals, Britain and the USSR invaded Iran, arrested Reza Shah and sent him into exile, and took control of Iran's communications and coveted railroad. In 1942 the United States, an ally of Britain and the USSR during the war, sent a military force to Iran to help maintain and operate sections of the railroad. The British and Soviet authorities allowed Reza Shah's political system to collapse and limited the constitutional government’s functions. They permitted Reza Shah's son, Mohammad Reza Shah Pahlavi to succeed to the throne.

In January 1942 Britain and the USSR signed an agreement with Iran to respect Iran's independence and to withdraw their troops within six months of the war's end. In 1943, at the Tehran Conference, the U.S. reaffirmed this commitment. In 1945, the USSR refused to announce a timetable to leave Iran's northwestern provinces of East Azerbaijan and West Azerbaijan, where Soviet-supported autonomy movements had developed.

Mohammad Reza "Shah"

The USSR withdrew its troops in May 1946, but tensions continued for several months. This episode was one of the precipitating events of the emerging Cold War, the postwar rivalry between the United States and its allies, and the USSR and its allies.

Iran's political system became increasingly open. Political parties were developed, and in 1944 Majlis elections were the first genuinely competitive elections in more than 20 years. Foreign policies remained very sensitive issues for all parties. The Angelo-Iranian Oil Company (AIOC), which was owned by the British government, continued to produce and market Iranian oil. In the beginning of 1930s some Iranians had begun to support the nationalization of the country's oil fields. After 1946 this became a major popular movement.

When Mohammad Reza Shah replaced his father on the throne on September 16, 1941, he wanted to continue the reform policies of his father, but a contest for control of the government soon erupted between the shah and an older professional politician, the nationalistic Mohammad Mosaddeq.

Despite his vow to act as a constitutional monarch who would defer to the power of the parliamentary government, Mohammad Reza Shah increasingly involved himself in governmental affairs and opposed or thwarted strong prime ministers. Prone to indecision, however, Mohammad Reza relied more on manipulation than on leadership. He concentrated on reviving the army and ensuring that it would remain under royal control as the monarchy's main power base. In 1949 an assassination attempt on the Shah, attributed to the pro-Soviet Tudeh Party, resulted in the banning of that party and the expansion of the Shah's constitutional powers.

In the context of regional turmoil and the Cold War, the Shah established himself as an indispensable ally of the West. Domestically, he advocated reform policies, culminating in the 1963 program known as the White Revolution, which included land reform, the extension of voting rights to women, and the elimination of illiteracy.

These measures provoked religious leaders, who feared losing their traditional authority, to raise their voices against him, which consequently led to some civil unrest. And the increasing arbitrariness of the Shah’s rule caused more provocation among the intellectuals, who seeking democratic reforms. These opponents criticized the Shah for subservience to the United States and for violation of the constitution, which placed limits on royal power and provided for a representative government. The Shah saw himself as heir to the kings of ancient Iran, and in 1971 he held an extravagant celebration of 2,500 years of Persian monarchy. In 1976 he replaced the Islamic calendar with an "imperial" calendar, which began with the foundation of the Persian Empire more than 25 centuries earlier. These actions were viewed as anti-Islamic and resulted in religious opposition.

The shah's regime suppressed and marginalized its opponents with the help of Iran's security and intelligence organization, the SAVAK. Relying on oil revenues, which sharply increased in late 1973, the Shah pursued his goal of developing Iran as a mighty regional power dedicated to social reform and economic development. Yet he continually sidestepped democratic arrangements, remaining unresponsive to public opinion and refused to allow meaningful political liberties.

By the mid-1970s the Shah reigned amidst widespread discontent caused by the continuing repressiveness of his regime, socioeconomic changes that benefited some classes at the expense of others, and the increasing gap between the ruling elite and the disaffected populace. Islamic leaders, particularly the exiled cleric Ayatollah Khomeini, were able to focus this discontent with a populist ideology tied to Islamic principles and calls for the overthrow of the shah. The Shah's government collapsed following widespread uprisings in 1978 and 1979. The Pahlavi Dynasty was succeeded by an Islamic government under Ayatollah Khomeini.